Axis Bank’s June quarter earnings were impacted by a one-time technical adjustment, which resulted in higher slippages and weighed on profitability. To explain this impact, the bank’s CFO Puneet Sharma used a simple example in its post-results conference call:
Imagine a customer, let’s call them X — who has a personal loan of Rs 100 and is already 5 days overdue. The bank’s collections team assesses that X may not be able to fully repay and offers a one-time settlement (OTS): the loan will be repaid in three installments of Rs 30 each, with a 90-day moratorium before payments begin.
During the moratorium, the days-past-due (DPD) counter continues to move because no payment has been made yet. On the 95th day, after the moratorium ends, X pays Rs 30, clearing all past overdue amounts and resetting the DPD to zero.
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Earlier, the bank would have upgraded the account’s status to “good” as soon as the DPD returned to zero, even though the customer still owed Rs 70. But now, under stricter technical parameters, the bank does not immediately upgrade such accounts. Instead, it waits until all settlement terms are fully honored and other qualitative checks are satisfied.
This shift — from relying purely on DPD to applying stricter, qualitative criteria — meant more accounts stayed classified as bad loans, resulting in higher reported slippages for the quarter.
Specifically, the technical impact pushed Q1 slippages to Rs 8,200 crore, of which about Rs 2,709 crore was attributable to these new parameters. Without the technical adjustment, slippages would have been Rs 5,491 crore.
The technical impact also weighed on profitability metrics: it reduced Q1 profit after tax by Rs 614 crore, lowered return on assets by 15 basis points, and pulled down return on equity by 140 basis points, the bank said.
By tightening its rules, Axis Bank said that they opted for a more cautious approach to classifying loans, prioritising repayment quality over just the overdue count resetting to zero.
Having said that, Sharma noted that this is one example. "The criteria changes across multiple examples. We would not like to discuss all of them on the call," he added.
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